Wednesday, May 14, 2008

we're bankrupt

"The Fed has gone from being a balancing (liquidity) mechanism to being a funding (equity) mechanism, and what's worse, the collateral they are holding may not be worth the amount of loan they have outstanding."

"That is, the system as a whole is insolvent, in that it fails the essential test of having the amount of reserves in liquid assets as mandated by law."

"What's worse, since the H.3 report says that the amount of "required reserves" is $40 billion or so, and the non-borrowed reserves is more than double that amount the system is not only insolvent (that is, has non-borrowed equal to the required amount) but in fact is negative by double the amount required."

The above is from an article by Market Ticker, and he explains it really well. I'm no economist. And I am really bad at math. But even I know that a huge spike on a graph is a pretty bad thing and that you're not supposed to be borrowing way more money than you have ability to pay back. Hmmm. Another guy, Mr. Mortgage though excitable, is also clear and credible.